As a prospective bidder or target, what should you be wary of when obtaining or using shareholder intention statements?
The last few years have seen an increase in regulatory attention over the use (or rather, misuse) by bidders and targets of shareholder intention statements. In a number of recent cases, in particular those involving takeover bids for MYOB1 and Bullabulling2, the Australian Takeovers Panel (Panel) has found bidders and targets to have used statements made by target shareholders in a manner that was unacceptable. This included both statements by shareholders as to their intention to accept a takeover offer and to reject a takeover offer.
Shareholder intention statements are designed to persuade shareholders to take a particular course of action or dissuade other prospective bidders from making a competing proposal. The Panel’s primary concern with such statements is their potential, if used inappropriately or incorrectly, to confuse or distort information in, and jeopardise the competitiveness and efficiency of, the market in the course of a control transaction, such as a takeover bid.
The Panel’s new Guidance Note 23, introduced in December 2015, highlights some significant (but easily avoidable) flaws in the way shareholder intention statements have been used or relied upon in the context of takeover bids, and the Panel’s approach to them.
In our view, there are three questions that every bidder or target should ask themselves before using or relying upon a shareholder intention statement:
- Do I have the consent of the shareholder to use the statement?
- Does the statement accurately communicate the shareholder’s intention?
- What inferences are likely to be made from the statement, and do I intend those inferences to be made?
As the decisions in Bullabulling and MYOB show, failure to satisfy oneself as to each of the above issues could easily land a bidder or target in deep water with the Panel. Where the use of a shareholder intention statement gives rise to a declaration of unacceptable circumstances, the Panel has wide powers to make any orders it deems appropriate to remedy the situation.
Even in the absence of such a declaration, the Panel may require undertakings such as the withdrawal of a statement or the lodgement of a supplementary takeover document, which can result in increased delay, inconvenience and cost to bidders and targets in the bid process that could otherwise be avoided.
Issue 1: Do you have the consent of the shareholder to use the statement?
It is vital to obtain consent if you are planning to include a statement made by a shareholder in your bidder’s or target’s statement or other takeover document, such as letters to shareholders (takeover document).3 Under the Corporations Act, a bidder’s or target’s statement may only include a statement by a person if that person has consented to the statement being made, and the takeover document discloses that consent has been given. Failure to do so is a strict liability offence.
- Consent in this context means express consent, and must be obtained:
- from the very shareholder registered on the target share register, whose statement you wish to rely upon; and
prior to the lodgement and release of your takeover document (containing the relevant statement and consent) to ASIC and target shareholders.
But surely that’s common sense, you say? Fair enough. But this very issue was thrown into the spotlight in Bullabulling, when the Panel was asked to make a declaration of unacceptable circumstances against Bullabulling for including in its target’s statement and letter to shareholders, a number of statements indicating the collective intention of 101 Bullabulling shareholders to reject the takeover offer (rejection statements).
The key objections to Bullabuling’s use of the rejection statements were that:
- Bullabuling had sourced the majority of the statements from posts on an internet stock discussion forum, HotCopper, and had failed to obtain the express consent of the registered shareholders to their inclusion in Bullabulling’s takeover documents; and
- Bullabuling had neglected to disclose, in its takeover documents, both the identities of the shareholders to whom the rejection statements were attributable and their percentage voting power in Bullabulling.
Ultimately, the Panel accepted an undertaking from Bullabulling to lodge a supplementary target’s statements, withdraw the relevant statements and disclose the circumstances under which the rejection statements were compiled (including the absence of consent), and as such, did not make a declaration of unacceptable circumstances. However, the principles highlighted by this case around consent are now cemented in the Panel’s Guidance Note 23 which provides:
- Takeaway Point 1: shareholder intention statements must only be published in a takeover document if the shareholder has consented and the consent (including details of the shareholder who gave the consent and its shareholding in the target) is included in the document. Where consent is given on behalf of a registered shareholder, one should also verify that the agent has authority to speak on behalf of the registered holder; and
- Takeaway Point 2: where a bidder or target wishes to include an intention statement made by multiple shareholders in its takeover document, each individual shareholder within the aggregated group must have consented to the disclosure of the statement, and details of their identity and individual shareholdings must be separately provided for in the statement.4
Issue 2: Does the statement accurately communicate the shareholder’s intention?
It is equally important to ensure that, where a shareholder has consented to the inclusion of an intention statement made by it in your takeover document, the intentions of that shareholder are accurately reflected in the takeover document.
This was, again, a key issue in Bullabulling, as the company had failed to reflect in its takeover documents, that a number of the shareholders upon whose statements the rejection statements were based, had in fact qualified their statements by indicating that they would be open to accepting an increased takeover offer for Bullabulling. Rather, in composing the rejection statements, Bullabulling gave an impression that all of the shareholders from whom it had received statements had represented an unqualified rejection of the takeover offer.
On this basis (and others), the Panel found that the rejection statements were misleading and ordered, in the circumstances of the case, that they merely be withdrawn. Prospective bidders and targets should take note however that the use of misleading statements (regardless of whether there is an intention to mislead or deceive) risks regulatory action by ASIC for misleading or deceptive conduct, which could give rise to more serious consequences including both criminal liability and civil liability for loss or damage suffered by third parties as a result of the misleading conduct.
To avoid the risk of mispresenting a shareholder’s intentions:
- Takeaway Point 3: bidders and targets should, when using an intention statement from a shareholder, ensure that the statement (including any qualification) is expressed in terms that are clear in meaning. For example, the Panel has suggested, in Guidance Note 23, that an intention expressed as a “present” intention is ambiguous, and could be clarified by appropriate qualification as to under what circumstances the shareholder’s intention may change.
Issue 3: What inferences are likely to be drawn or made from the statement, and are they intended?
Obtaining consent and getting the statement right is, however, not the whole story. It is also important to consider what a shareholder intention statement doesn’t say, and what inferences can be drawn from this which could unnecessarily delay or otherwise adversely affect the outcomes of a takeover bid.
For example, if a shareholder makes a statement indicating its intention to accept a takeover offer, either without qualification of being subject to a superior offer being made or, if qualified, the shareholder goes on to accept the offer without allowing a reasonable time for a superior offer to emerge, the Panel may be interested in:
- whether the circumstances support an inference that an agreement, arrangement or understanding existed between the shareholder and bidder; and
- in turn, whether the bidder has a pre-bid stake that it has failed to disclose to target shareholders or possibly a larger stake than it has already disclosed.
Such a statement was the subject of the Panel’s decision in MYOB, where the bidder’s statement included the intention statements of several MYOB shareholders to accept a takeover offer for MYOB as soon as the offer opened, without qualification. The Panel considered that the shareholder intention statements were “at odds with commercially rational behaviour and common market practice”, which dictates that offers be qualified, and not be accepted until late in the offer period to ensure the best commercial deal for the shareholders.5 Following from this reasoning, the Panel inferred the existence of an “understanding” between the bidder and the relevant MYOB shareholders, which gave the bidder a relevant interest in approximately 34% of the shares in MYOB prior to the bid, and made a declaration of unacceptable circumstances.
As a bidder, it is important to avoid such inferences being made (unless you in fact have an association with certain target shareholders, in which case this should be clearly disclosed in your bidder’s statement), so as to avoid the ensuing complications of lodging supplementary takeover documents to correct your initial disclosure or the implicated target shareholders being required to delay their acceptance of your takeover offer (as occurred in MYOB).
To avoid such consequences, Guidance Note 23 provides the following useful guidance to the Panel’s assessment of whether the terms of a shareholder’s statement of intention to accept a takeover offer (acceptance statement) gives rise to unacceptable circumstances:
- Takeaway Point 4: an acceptance statement should always contain a qualification that it is subject to no superior offer emerging – for example: “X, a holder of #% of the target’s shares, intends to accept the offer by Y in the absence of a superior proposal”; and
- Takeaway Point 5: an acceptance statement may also be qualified by reference to time – for example, “X, a holder of #% of the target’s shares, intends to accept the offer by Y, but by no earlier than Z days after the opening of the offer and only in the absence of a superior proposal emerging during that time”. However, if it does so, the time period specified (“Z”) must be sufficiently long to allow superior offers to materialise. Whilst what is a sufficient time period will depend on the circumstances, a period of 21 days after a takeover offer has opened will generally be considered reasonable.
Guidance Note 23 confirms the increased regulatory attention that has been directed towards bidders and targets who wish to use shareholder intention statements to support their cause in the context of a takeover bid. Whilst the Panel has not expressly discouraged use of shareholder intention statements, Guidance Note 23 serves to highlight key concerns associated with their use and provide guidance on factors that may give rise to unacceptable circumstances which all prospective bidders and targets would do well to be aware of.
1.In the matter of MYOB Limited  ATP 27 (MYOB).
2. Bullabulling Gold Limited  ATP 8 (Bullabulling).
3. The Panel makes clear in its Guidance Note 18 (‘Takeover documents’) that the same standard of care and level of disclosure should be applied to any takeover document sent to target shareholders as is applied to formal bidder’s and target’s statements: Bullabulling, .
4. Panel Guidance Note 23, [11(c)-(d)]; Bullabulling, .
5. MYOB, .
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